FIN307- Test 1

Index movements are influenced by differential prices of the components in a(n)

Price-weighted index

Which is NOT an implication of the EMH?

Aggregate market analysis that involves very detailed analysis of reliable historical economic data should outperform a simple buy and hold policy

According to the strong form efficient market hypothesis, stock prices fully reflect

All public and private information

Exchange traded funds

Can be bought and sold like common stocks

And advantage of technical analysis over fundamental analysis is that technical analysis

Can capture non-quantifiable variables such as psychological factors

The strong form of the efficient market hypothesis contends that only insiders can earn abnormal returns

False

Which of the following is not a component of the required rate of return?

Holding period return (inflation, time,risk, nominal return)

The implication of efficient capital markets and the lack of superior analyst have led to the introduction of

Index funds

What effect does a stock substitution or stock split have in a price-weighted series?

Index remains the same; divisor will increase/decrease

The ability to sell an asset quickly at a fair price is associated with

Liquidity risk

An example of a value weighted stock market indicator series is the

S&P 500 Index

Technical analysis differs from fundamental analysis in that

Technical analyst believe the market value of a common stock is determined by the interaction of supply and demand

In a price weighted average stock market indicator series, the following type of stock has the greatest influence:

The stock with the highest price

When the 50 day moving average crosses the 200 day moving average from Below on good volume

This would be a bullish indicator because it signals a change to a positive trend

Prices in efficient capital markets fully reflect all available information and rapidly adjust to new information

True

Studies concerning quarterly earnings reports indicate that information in quarterly statements is of value and can provide an above average risk adjusted return

True

The general purpose of a market indicator series is to provide an overall indication of aggregate market changes or movements

True

The weak form of the efficient market hypothesis contends that technical trading rules are of little value

True

Which of the following is NOT a component of the risk premium?

Unsystematic market risk (business, financial, liquidity, exchange rate)

Which index is created by first deriving the initial total market value of all stocks used in the index?

Value-weighted index